E&O, Top Glove improve prospects, get neutral calls: PublicInvest Research

PublicInvest Research is positive on Eastern & Oriental Bhd (E&O)'s sale of Lone Pine Hotel in Penang for RM85 million, earning it a “neutral” call with a target price of RM2. (Photo taken from www.lonepinehotel.com)

KUALA LUMPUR: PublicInvest Research is positive on Eastern & Oriental Bhd (E&O)'s sale of Lone Pine Hotel in Penang for RM85 million, earning it a “neutral” call with a target price of RM2.

The research house said that the bulk of the proceeds from the sale will be used as working capital and to lighten its debts.

The disposal of Lone Pine Hotel comes via the signing of a share sale agreement between E&O and Langkawi Saga Shopping Centre and Lubritrade Pte Ltd for the sale of E&O Express Sdn Bhd (which owns and operates the hotel).

The hotel is seen as a non-core asset for the group by the research house.

The firm goes on to say that E&O's net gearing is expected to improve from 0.75x to 0.71x after the completion of the disposal.

The proposed sale is expected to be completed by October 2017.

"We are positive on the asset sale, as this will strengthen the group’s balance sheet via realising cash resources which can then be deployed into identified projects and investments to maximise returns," PublicInvest Research said in its company update report.

On the matter of non-core assets that could potentially be disposed of, PublicInvest Research also highlighted E&O's Straits Quay Retail (RM233 million in book value), and its non-strategic landbank at Jalan Liew Weng Chee (measuring 0.9-acres, off Jalan Yap Kwan Seng), which has a market value of RM55 million.

Separately, in its results review report on Top Glove Corporation Bhd, PublicInvest Research gave the company a “neutral” call with a higher target price of RM5.93 (RM4.62 previously).

The neutral call for Top Glove comes on the back of its 9MFY17 net profit of RM234.1 million which was broadly, in line with the firm's estimates.

"We continue to maintain our neutral call with a higher TP of RM5.93 as we see the results of the Group’s internal enhancements, coupled with cost pass-through effects providing some relief with higher average selling prices (ASPs).

"We have thus adjusted our revenue and earnings estimates higher, to between 3 per cent and 4 per cent and 15 per cent to 21 per cent for FY18F and FY19F, respectively," the research house said.

PublicInvest Research views favourably Top Glove management’s plans to achieve a 30 per cent global market share by 2020, which is underpinned by its robust expansion plans which will see capacity increase by another 20 per cent in the next two years.

"Through the acquisition of two glove factories to pave its way into the China market in May, which are targeted to be completed by August, the Group will add another 1.1 billion gloves per annum.

"By December 2018, Top Glove is estimated to have 628 production lines, with 59.7 billion gloves per annum capacity," the report said.